I was, until recently, Economics Editor of The Telegraph. You can find my book - 50 Economics Ideas You Really Need to Know - here.

Debt interest will still cost 10p in every pound even after Tory cuts

When earlier this week David Cameron warned that based on the previous Government’s plans (and private forecasts) Britain would soon face a debt interest bill of £70bn, it was intended to serve as a warning of how bad things could get. A debt-financing bill of that order, he said, would mean 10p in every pound of tax revenues would go straight towards paying debt interest – more than “we currently [spend] on running schools in England plus climate change plus transport.”

But, the implication went, if we follow our plans, cut the deficit quickly and so on, we can avert this disastrous outcome.

Well I’m afraid I have some rather bad news: we won’t. The fact is that even with spending cuts deeper than even the Tories were signalling before the election, Britain will still face a debt interest bill of around £70bn by 2014. These costs will still eat up 10p of every pound in tax.

The calculations are not mine, I hasten to add, but those of Fitch, the ratings agency, which today laid out a path of deficit cuts which would, in its eyes, help safeguard Britain’s triple-A credit rating and help it avoid the possibility of a Greece-style crisis. The cuts involve reducing the annual deficit from its level last year of just over 11pc of gross domestic product to 3pc of GDP by 2014. This compares with the Treasury’s plans to get the deficit down to 4.2pc by then, and is also far more ambitious than the 3.7pc target the Institute for Fiscal Studies mapped out some months ago as a possible scenario were the Tories to win the election.

In other words, we’re talking here about even bigger cuts and even more pain than the Government is currently pointing towards. You might have expected that this would bring the debt interest bill down quite considerably, but according to Brian Coulton, head of European ratings at Fitch, this would still leave it at £70bn by 2014. The problem is that debt interest is largely related to the total size of the national debt. Under even Fitch’s ambitious plans, the national debt would still be around 83.7pc of GDP in 2014 (compared to HMT’s plan of 88.7pc).

Now, this is pretty depressing stuff. But that is the reality of the task we are facing. One of the biggest problems I foresee in the coming years is that people will be very impatient about seeing early results. But the process of cutting the deficit will take years. The toughest work can be done over the course of this Parliament, but even after that it will take some decades (the IFS thinks not until 2030) for Britain to get its national debt back to the 40pc of GDP level it sat at before the crisis. That is the cost of the biggest financial crisis in British history. No wonder we’re still having trouble digesting it.